The number of Grand Rapids city income-tax returns filed, and the revenue they bring into the tax brings into the city, is up this year.MLive.com File

GRAND RAPIDS, MI – City income tax filings are up almost 7 percent from last year to more than 100,000 returns and projected revenue is up 9 percent, or more than $6 million.

That’s according to a report from the city’s income tax department, which wraps up its 2012-2013 fiscal year collections this month.

“More people are working," said John Schaut, city income tax administrator. "More people are filing income tax returns, and more people are filing those returns without us having to chase them down."

Schaut in a 25-minute report Tuesday, July 23, to the Grand Rapids City Commission stated that the number of income-tax returns filed is up from 99,336 last year to 106,051 this year. The number of e-filed returns also is up, although to a lesser extent. E-filings overall are up 2 percent to 31,983 returns, with most of that growth coming from professional tax preparer filings. Returns filed using the city’s online tax tool fell from 2,320 to 1,902.
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Schaut also put commissioners on alert that it will be a costly pain to change the income tax rate in July 2015, as planned. City voters in 2010 approved a five-year rate increase and it cost an estimated $125,000 to implement that increase in the middle of a calendar year, he said.

Allocating the correct amount of income to the correct tax rate was particularly annoying for people who moved in or out of the city or started or stopped working in the city during 2010, Schaut said.

The rate went from 1.3 percent of income for city residents to 1.5 percent, and from 0.65 percent for non-residents working in the city to 0.75 percent.

“The additional forms and instructions required to support a mid-year tax rate change presented a formidable challenge for many taxpayers to correctly complete and file their returns as well as for staff who found it to be very difficult to interact with taxpayers,” he wrote in a memo to the commission.

“There are direct expenses associated with form development and distributions of forms and instructions. More important is the lost revenue from curtailed compliance work as staff is mustered to respond to thousands of taxpayer inquiries seeking information and clarification on how to prepare their return.”

City Manager Greg Sundstrom said he plans later this year to bring the commission recommendations on how to handle the mid-year sunset of the income-tax increase. Grand Rapids voters might be asked in November 2014 to continue the current rate and put the revenue toward street maintenance, but the timing of that vote could complicate the income tax department’s roll out of tax withholding tables for 2015.

“There’s all kinds of issues that we need to work out,” Sundstrom said. “John’s just warning that we have an issue with the income tax rate changing.

“It changes in the middle of a calendar year, which is the worst thing you can do for (the income tax department). We went through it once when we implemented the temporary tax. What are we going to do when we get out of it?”